China is in a shaky ground, they seem to have hit a road block. In April-May 2015, they offered IPO’s at a discount to bring in foreign inflows. It did come in truck loads; FPI’s deserted other emerging markets, by triggering a sell off. China was happy, markets exploded with the support of the huge fund flow, gave a 150% gain in 6 months.
By beginning June, the world was aghast about the phenomenal growth China markets had, many even thought that, they had missed a great opportunity, even though there were no reason that was fundamentally strong to invest into China.
Just as this thought was beginning to rise in the minds of people, China markets took to a drastic turn. Within 7 days markets lost 25% of value and kept falling as if there was not bottom. All the investors who made a beeline to invest into the discounted IPO’s wanted to book profit and take away whatever profits were available to them. This was adding pressure to the prices.
Government reacted; they began to suspend trading in stocks that tanked badly. About 1440 companies suspended trading on the main board of Shangai and Shenzen markets, world went into panic mode. Suspension continued for 4 straight days, never in the history of the financial markets did this happen. Even locals began to lose confidence, Mutual Fund investors in China too hit the redemption button, but fund houses were not having funds to redeem as they were not able to sell holdings to get cash. Investor sentiments took a big hit.
Chinese economy was in a slowdown mode, it was not because they got lesser business. The US markets which have been feeding the Chinese manufacturing might was still doing good. All the problems were due to huge capacities that Chinese companies had built. It was so large that they need the whole world requirements to be catered to, to reach their utilization levels. But, will that be a possibility? Too much greed has caused this dramatic fall. And is there is a chance to recover? Possibly not, unless some adverse measures are taken.
And it happened, China resorted to devaluing their currency, twice within 2 days and was planning further cut. This again shook the emerging markets; all of a sudden emerging markets became uncompetitive. China wanted to take away all the business from the world by selling cheap. Now, they have irked the anger of other economies who were surviving through exports. Textiles, Auto mobiles and other manufacturing businesses took a severe beating.
In order to keep its hunger fed, China is killing the world, how long will this situation continue? Don’t know, but for China the days are numbered. They will resort to such indecent moves which will take them out of confidence on all fronts.
Who will be the major gainer in this fight for supremacy? India is going to be the highest beneficiary, after all the dust settles and the confidence on the Chinese market is eroded, the only market that can support the world requirement to some extent is India. Already work is on to de-risk china in our growth. But, till that wonderful time of supremacy comes to India, we too have to go through the pain. The pain that will teach us how to handle similar crisis and march forward.